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CASE NO.:

Appeal (civil) 6945 of 2004

PETITIONER:

Anumati

RESPONDENT:

Punjab National Bank

DATE OF JUDGMENT: 25/10/2004

BENCH:

RUMA PAL & ARUN KUMAR

JUDGMENT:

J U D G M E N T

(Arising out of S.L.P.(C) No.15786 of 2002)

RUMA PAL, J.

Leave granted.

This appeal raises the issue whether a fixed deposit

jointly owned with an "either or survivor" clause can be pledged

by one of the account holders with the Bank and whether the

Bank can adjust the amount of fixed deposit against such

pledge, without the authority, knowledge or concurrence of the

other account holder.

The appellant and her husband Mam Chand made a

fixed deposit of Rs. 20,000/- with the respondent bank on 31st

May, 1988 for a period of 84 months ( i.e. seven years). The

fixed deposit would have matured on 31.5.1995 and the

amount payable on maturity was Rs. 39,930/- According to

the appellant half of the deposited amount belonged to her and

the other half belonged to her husband. On 24th June, 1988, a

loan was taken by one Khem Chand in his sole proprietary

business of M/s. Verma Agro Industries. In 1991 the

respondent bank filed a suit against M/s. Verma Agro

Industries, Khem Chand and the appellant's husband Mam

Chand. In the suit it was alleged that M/s. Verma Agro

Industries and Khem Chand had executed various agreements

with regard to the loan and credit facilities made available by

the Bank to them. It was also pleaded in the suit that Khem

Chand and Mam Chand had secured the amount of the loan by

creating a mortgage in respect of immoveable property

consisting of agricultural land. According to the plaint a total

sum of Rs. 2,57,625/- inclusive of interest was payable by M/s.

Verma Agro Industries and Khem Chand to the respondent

Bank. It was further pleaded that Mam Chand and one Nanak

Chand had executed guarantee agreements on 24th June,

1988. The Bank prayed for a decree for Rs. 2,57,625/- together

with the additional interest and for enforcement of the claim

against the hypothecated and the mortgaged properties with a

further prayer that if the aforesaid securities were found

insufficient for realization of the amount payable under the

decree, it be given the liberty to recover the balance from the

persons and other properties of the defendants.

While the suit was pending, a legal notice was given on

28th November, 1992, to the respondent Bank by the appellant

and Mam Chand through their advocate, asking for premature

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encashment of the fixed deposit receipt. It was alleged in that

letter that the Bank had kept the original receipt and only

issued a photo-copy of the same to Mam Chand and the

appellant with the assurance that the amount deposited would

be encashable whenever required. It was also stated that both

Mam Chand and the appellant were illiterate and had relied

upon such representation made by the Bank. It does not

appear that the Bank had responded to this notice. A second

notice was sent through an advocate by Mam Chand and the

appellant on 26.5.1995, again demanding the amount payable

on maturity of the fixed deposit stating that the original FDR

receipt had been lost by the appellant and her husband. This

letter also does not appear to have been replied to by the

respondent Bank.

On 3rd July, 1995 the respondent Bank filed an application

in the Court before which the suit was pending seeking to

inform the Court that the fixed deposit receipt had been

"mortgaged" as security towards the disputed loan and that it

had "after taking permission of higher officials" deposited the

amount covered by the fixed deposit in the disputed loan

account. Mam Chand filed an objection to the Banks'

application saying that he had never given any such guarantee

and that the fixed deposit receipt had never been mortgaged to

the Bank.

The Trial Court allowed the Bank's application holding

that the amount of fixed deposit account had rightly been

adjusted in the account of the disputed loan. Mam Chand

challenged this order by way of a revision application under

Section 115 of the Code of Civil Procedure. The Revisional

Court held that the application was not maintainable under

Section 115 of the Code of Civil Procedure as amended by UP

Act No. 31/1978. It was held by the Revisional Court that it was

open to Mam Chand and his wife to initiate legal

actions/proceedings for the recovery of the amount deposited,

against the Bank. It was further held that the order of the Trial

Court would not in any way inhibit the appellant from initiating

such proceedings since she was not a party either in the suit or

to any other proceedings initiated by Bank. The Revisional

Court found as a fact that the fixed deposit receipt did not bear

the thumb impression of the appellant and the only thumb

impressions appearing thereon were that of Mam Chand. It

was also held that since the FDR was not mortgaged as

guarantee for the loan taken by Verma Agro Industries or Khem

Chand, the dispute regarding the FDR was not in issue in the

suit filed by the Bank. It was therefore held that the Trial Court

should not have passed any order regarding the right of the

Bank to adjust the amount of the fixed deposit towards the

recovery of the loan alleged to have been taken by M/s. Verma

Agro Industries and Khem Chand. Despite having come to the

conclusion that the Trial Court's order was without jurisdiction,

"totally irrelevant and unwarranted", the Revisional Court did

not interfere with the order of the Trial Court on the basis of the

UP Amendment to Section 115 of the Civil Procedure Code.

The appellant then filed a complaint before the District

Forum under the Consumer Protection Act. It was contended

by the respondent Bank before the District Forum that both the

Trial Court as well as the Revisional Court had held that the

fixed deposit receipt had been mortgaged by Mam Chand as

security for the loan granted by the Bank to M/s. Verma Agro

Industries and that Mam Chand was entitled to do so because

the fixed deposit receipt had specified that it was payable to

"either or survivor". The District Forum, however, came to the

conclusion that the appellant was entitled to recover half of the

amount of the FDR i.e. Rs. 19,965/- together with interest from

1.6.1995 because she had never mortgaged her share of the

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fixed deposit in favour of any party. It was held that since the

receipt was in the joint name of the appellant and her husband,

the respondent Bank should not have accepted any pledge of

the account without informing the appellant and getting her

consent. Since it had not done so, the service rendered by the

Bank to the appellant was deficient. The Bank was therefore

directed to pay the appellant a sum of Rs. 19,967/- together

with interest at 17% per annum thereon as well as Rs. 3,000/-

towards mental agony suffered by the appellant and costs of

Rs. 1,000/-.

The Bank preferred an appeal to the State Commission.

The State Commission proceeded on the basis that Mam

Chand had validly pledged the FDR with the respondent-Bank.

It held that since the fixed deposit receipt was payable to "either

or survivor" it showed that the Bank could have got discharge

by making payment to either of the account holders. According

to the State Commission when payment could have been made

to a single individual in terms of the directions of the depositors

then the Bank was at liberty to accept mortgage of the fixed

deposit receipt on behalf of one of the depositors and the

consent of the other depositor was not necessary. The appeal

was accordingly allowed and the complaint of the respondent

was rejected. The National Commission merely reproduced the

view of the State Commission with which it concurred. It also

held that financial institutions had every right to protect their

interest by taking "conscious decisions". Since the Bank had

taken a "conscious decision" in this case, it could not be faulted

and there was no deficiency of services.

Before us learned counsel for the appellant has claimed

that the Bank had no right to adjust the amount of the fixed

deposit receipt when there was no claim with regard thereto

and when the liability of the defendants in the suit was yet to be

quantified. It is further submitted that the Bank had in any

event no claim against the appellant and could not have acted

on the basis of any pledge alleged to have been created by the

husband of the appellant of the fixed deposit receipt without

the knowledge, concurrence or consent of the appellant. The

decision of the Division Bench of the Lahore High Court in

Simla Banking and Industrial Company Ltd. Ambala City

Vs. Mt. Bhagwan Kaur AIR 1928 Lahore 316 and a passage

from Tannan's Banking Law and Practices in India have been

cited as authorities in support of this submission.

The respondent has submitted that since the account was

admittedly an "either or survivor" one, it was open to Mam

Chand to pledge the account with the Bank and the consent of

the appellant was unnecessary. It is submitted that the

appellant had come with an inconsistent case with regard to the

loss of the original fixed deposit receipt. It is further submitted

that Mam Chand had created the pledge by executing a

discharge on the fixed deposit receipt on the same date that the

fixed deposit was pledged by Mam Chand with the Bank.

Although it is admitted that the fixed deposit had not been

mentioned in the plaint as one of the Banks' securities nor any

claim raised in respect thereof, it is contended that this was not

necessary in view of the discharge granted by Mam Chand on

the fixed deposit receipt. On the question of legality of the

adjustment of the fixed deposit account, it is submitted that it

had already been decided by the Civil Courts that this was

validly done. The respondent Bank relied upon the decision of

this Court in Punjab National Bank and Ors. Vs. Surendra

Prasad Sinha reported in 1993(1) suppl. SCC 499 to contend

that the Bank had a general lien on the account.

Parties to a joint account are not automatically authorized

to pledge each others credit. According to Sheldon and

Fidler's Practice and Law of Banking , a Banker should not

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lend money to the parties to a joint account, either by means by

an overdraft or in any other way, without obtaining from each of

the parties an undertaking to be severally as well as jointly

liable to pay the loan. The Banker has no right to set off the

credit balance in the joint account except in respect of another

joint account of the same parties (ibid). The difference between

the Joint Fixed Deposit account and a joint Savings, Current or

other account, is that there is no right in the depositors to

operate such account and withdraw the moneys except upon

maturity.

A fixed deposit in the joint names of two persons is

nothing but a joint account which, as the name itself suggests,

is repayable on the expiration of the agreed period. The fixed

deposit receipt is merely a written acknowledgement by the

Bank that it holds a certain sum to the use of its customers.

The Bank is thus a debtor to the account holders in respect of

the amount deposited \026 a debt which is repayable by the bank

to the account holders with interest on the expiry of an agreed

period. An "either or survivor" clause in such an account

means that the amount payable by the Bank on maturity of the

fixed deposit may be paid to either of the account holders by

the Bank in order to obtain a valid discharge. In other words

under a tripartite agreement between the joint account holders

inter se and the Bank, the Bank may, on maturity, make

payment only to either of them. This tripartite agreement

cannot be bilaterally modified by one of the joint account

holders for example by pledging the account with any third

party including the Bank itself in its capacity of creditor, so that

the amount becomes payable to such third party, without the

consent of the joint account holder. Thus in Tannan's Banking

Law and Practice in India the legal position has been

summarized thus: "On the view that the terms of operation of a

joint account constitute a term of the contract of deposit, any

variation or revocation of instructions in a joint account, whether

the operation is by 'either or survivor' or 'former or survivor' can

be effected only under the joint signatures of all persons

entitled to operate the joint account. One of the joint account

holders thus cannot unilaterally instruct the Bank not to honour

cheques signed by the others, issue duplicate deposit receipt,

premature repayment or loan against Fixed Deposit".

This was also held by a Division Bench of the Lahore High

Court (Shadi Lal, C.J. and Broadway, J.) in Simla Banking

and Industrial Company Limited, Ambala City Vs. Mt.

Bhagwan Kuar AIR 1928 Lahore, 316. In that case Bhagwan

Kuar and her son Raghunandan Singh had deposited an

amount with the Bank against a Fixed Deposit Receipt which

was payable to "either or survivor". Raghunandan had

borrowed money from the Bank. The Bank credited the amount

due under the Fixed Deposit Receipt to the overdraft account of

Raghunandan. Bhagwan Kuar thereupon filed a suit against

the Bank for recovery of the amount due. The Bank pleaded a

general lien and claimed to have acted within its rights in

appropriating the amount as it had done. The Division Bench

was of the view that the action of the Bank was neither

supported by authority nor in law nor in equity.

The decision in Simla Banking and Industrial Company

Ltd. V. Mt. Bhagwan Kaur (supra) was followed by the

Calcutta High Court in the case of Nath Bank Ltd. V. Sisir

Kumar Sarkar AIR 1954 Cal. 303. In that case, there was a

fixed deposit made by two persons, one of whom was indebted

to the plaintiff-company. The fixed deposit receipt was

repayable after a period of 12 months to either or survivor. The

Calcutta High Court was of the view that during the joint lives of

the two account holders or at least until due demand for

repayment of the money was made by the Bank to the debtor -

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account holder the debt in the form of a fixed deposit receipt

was that of the bank to the joint account holders and the bank

could not set off a debt due from one of the joint account

holders against such a joint debt.

In Hirschorn v. Evans (Barclays Bank Ltd.,

Garnishees), 1938 (2) KB 801(L) a joint deposit account was

opened by A and B (who were husband and wife) and the bank

was authorized to accept the signature of either A or B or of the

survivor as a sufficient discharge for the repayment of the

moneys deposited. This debt was attached by a third party in

execution of a decree against A, the husband. Pursuant to the

garnishee summons, the Bank paid A's decretal debt to the

decree holder. The Court of Appeal held that inasmuch as the

debt which the bank owed was not a debt due to the husband

alone, but to him jointly with his wife, it could not be attached to

answer the judgment against the husband.

In our view, these decisions correctly set out the law. In

the present case the contract in respect of the joint account was

between the respondent bank and the husband and wife. The

fixed deposit was not a debt due by the bank to Mam Chand

alone which could be set off by the bank against any claim that

the bank may have had against Mam Chand. Besides the right

of Mam Chand was to receive the money deposited only after it

matured, if he survived. Supposing Mam Chand had died

before the fixed deposit matured, the only person entitled to get

the money would be the appellant. This right of the appellant

could not have been taken away without her consent.

The decision cited by learned counsel on behalf of the

respondents i.e. Punjab National Bank V. Surendra Prasad

Sinha 1993 (1) SCC 499 was not rendered in connection with a

joint fixed deposit account in which only one of the account

holders was a debtor. In that case, both the account holders

stood guarantors to the principal debtor and had jointly

executed the security bond and entrusted the fixed deposit

receipt as security to adjust the outstanding debt from it at

maturity.

We have our doubts regarding the validity of the order of

the Trial Court allowing the Banks "information" application. But

it is unnecessary to pronounce on it as it does not bind the

appellant as was correctly held by the Revisional Court. Nor

does anything turn on the supposedly shifting stances taken by

the appellant in the two legal notices as there is no dispute that

there was in fact a fixed deposit.

The State and National Commission both erred in

proceeding on the basis that the Civil Court's decision was that

the FDR had in fact been pledged by Mam Chand to the bank.

We have already quoted the observation of the Revisional

Court earlier. In fact, the Revisional Court also held that the

decision of the trial Court did not in any fashion bind the

appellant. There is no independent finding by any of the fora

that the pledge had indeed been created of the fixed deposit

receipt by Mam Chand as claimed by the bank.

In the circumstances, the Bank had no right to refuse

payment of the amount deposited to the appellant. The refusal

as disclosed to this Court, was contrary to banking norms. We

are therefore of the view that the District Forum was correct in

accepting, and the State Commission and the National

Commission erred in rejecting, the appellant's complaint. The

appeal is accordingly allowed and the decision of the State

Commission and the National Commission are set aside and

the order of the District Forum is confirmed with costs.